CA ANZ Core 1 flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Asset definition

A present economic resource controlled by the entity as a result of past events, with potential to produce economic benefits.

Accrual basis

Recording revenue when performance obligations are satisfied and expenses when incurred, regardless of the timing of cash receipts and payments.

Lower of cost and NRV

Inventory measurement rule under which inventory is written down when net realisable value falls below cost, with the write-down expensed.

Provision recognition criteria

A present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount are all required.

Break-even units

Fixed costs divided by contribution per unit; the sales volume at which total contribution exactly covers total fixed costs and profit is zero.

Contribution margin ratio

Contribution per unit divided by selling price per unit, expressed as a percentage; used to compute break-even revenue from fixed costs.

Relevant cost

A future, incremental and avoidable cash flow that differs between alternatives and therefore affects the decision being made.

Overhead absorption rate

Budgeted production overhead divided by budgeted activity level, used to assign fixed production overhead to units under absorption costing.

Material price variance

Standard price less actual price, multiplied by actual quantity purchased; a positive result is favourable because less was spent than standard.

Net present value

The sum of project cash flows discounted at the cost of capital; a positive NPV means the project adds value to the entity.

Weighted average cost of capital

The blended after-tax cost of equity and debt weighted by market value proportions; used as the discount rate for project appraisal.

Capital asset pricing model

Cost of equity equals the risk-free rate plus beta multiplied by the market risk premium, reflecting systematic risk only.

Cash conversion cycle

Inventory days plus receivable days less payable days; it measures how long cash is tied up in operating working capital.

Internal rate of return

The discount rate at which a project's NPV equals zero; accept if it exceeds the required rate, but it can mislead with non-conventional cash flows.

Segregation of duties

Separating authorisation, custody, recording and reconciliation so that no single person controls a transaction from start to finish.

General IT controls

Controls over access management, change management, IT operations and program development that support the reliable functioning of application controls.

Input validation controls

Checks applied as data is entered, including range checks, field format checks, check digits and batch totals, to prevent invalid data entering the system.

Disaster recovery plan

Documented arrangements for restoring IT infrastructure, data and systems after a disruption, including backup restoration and alternate site arrangements.

Audit risk model

Audit risk equals inherent risk multiplied by control risk multiplied by detection risk; the auditor reduces detection risk through substantive procedures.

Detection risk

The risk that audit procedures fail to detect a material misstatement; it is controlled by the auditor through the nature, timing and extent of testing.

Modified audit opinion

Issued as qualified, adverse or disclaimer depending on whether the matter is material or pervasive and whether it is a misstatement or scope limitation.

Control environment

The tone set by those charged with governance, covering integrity, ethical values, commitment to competence and organisational structure, underpinning all other controls.

Going concern assessment

Evaluation of whether the entity can continue operating for at least twelve months from the reporting date, considering forecasts and available financing.

GST input tax credit

Credit claimed for GST paid on creditable acquisitions used in carrying on an enterprise, offsetting GST collected on taxable supplies.

Fringe benefits tax year

The FBT year runs from 1 April to 31 March, differing from the standard income tax year ending 30 June.

Capital gains discount

Individuals and trusts may reduce a capital gain on assets held more than twelve months, lowering the gain included in assessable income.

Division 7A

Rules that treat certain loans, payments and debt forgiveness from private companies to shareholders or associates as assessable dividends.

Contract formation elements

Offer, acceptance, consideration, intention to create legal relations and capacity must all be present for a binding contract.

Director duty of care

Directors must act with the degree of care and diligence a reasonable person would exercise in that position, informed by the entity's circumstances.

Insolvent trading

Incurring a debt when the company is insolvent or becomes insolvent by doing so, exposing directors to personal liability.

Self-review threat

An independence threat arising when an assurance provider evaluates work it previously performed, such as preparing the figures it later audits.

Case response structure

Identify the issue, apply the relevant standard or principle, analyse the given data, and conclude with a supported recommendation.

Marks-to-time allocation

Allocating response time in proportion to marks available, so a higher-value question receives proportionally more analysis and development.